As the government and industries come together to push start-ups into prominence across the country, there is a visible focus on fintech companies, with many of them getting a larger share of the investment pie. Nasscom's 2017 incubator and accelerator report shows that four out of six major industry-incubator-accelerator partnerships have partial, if not complete, focus on fintech services.
"Quantifiable objectives in fintech start-ups are more measurable. Number of customers acquired, number of retail branches or number of efficiencies delivered, cost per transaction lowered, etc, are easier to show (in fintech) compared to other sectors," said K S Vishwanathan, Nasscom vice-president for industry initiatives and head of the 10,000 Startups programme. He added that while there was no differentiation between sectors as long as the idea was viable, fintech was currently booming simply due to its measurability.
A recent McKinsey report on impact investment noted a similar trend with most finances going to fintech start-ups, followed closely by clean technology. "45 to 50 per cent of IT services outsourcing to India comes from BFSI (banking, financial services, and insurance) space. That is the segment that is seeing maximum disruption and looking for change. The pressure on the country as a whole to innovate in fintech is immense," added Vishwanathan.
Nasscom's view on start-ups is simple: If a proposal looks profitable, it will receive investments irrespective of what area it is servicing. Historically, design-driven manufacturing has not been Indian businesses' forte even though there have been exceptions. Time and again, over the past decade, financial services have proved their credibility, be it in the form of RBL Bank, YES Bank or Bandhan. This was possible because of successful bankers who switched to financial services.
Fintech companies, in the form of payment facilitators, small lenders, and non-banking financial companies, are flooding the start-up ecosystem and changing how Indians have viewed loans and expenses for generations. Further, Vishwanathan said that the rapidly changing customer profile in financial services requires technological support driving fintech. "To understand the business model, you require the first generation of successful entrepreneurs who can invest here. In the next five years, all sectors will have such talent (as business matures)," added Vishwanathan.
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Does India need more homegrown venture capitalists (VC) to woo companies away from the shadow of an Alibaba, Tencent or Sequoia? "Money has no colour. A VC is a VC irrespective of where the funding comes from. Today, the top twenty-five VCs from Silicon Valley have a presence in India. Every year, at least ten international VCs are establishing their footprint here. India is a major market for investments and will continue to be so," said Vishwanathan, adding that a 30 per cent growth in the number of accelerators setting up shop in India only means better opportunities for the start-ups here.
Currently, India houses more than 140 accelerators and incubators for start-ups, compared to 2,400 and 1,500 across China and the US, respectively, said the Nasscom report. On the bright side, more than half of these are located in Tier-II and Tier-III cities and have a massive technology focus.